Executive Summary

With the Department of Labor’s fiduciary rule creating a push towards more levelized compensation, many insurance and investment product manufacturers are re-evaluating their commission structures, and a number of broker-dealers are re-evaluating their entire compensation structure as well. And a growing number of financial advisors are deciding that if the regulatory push is towards AUM (or retainer) fees, that they may as well just become (or join) a Registered Investment Adviser (RIA) directly. Which means in the coming year, there may be a surge of Series 65 exam takers.

And so in this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss tips for financial advisors to get their Series 65 license, and what to expect when going to sit for the Series 65 exam.

The good news is that because the Series 65 exam is heavily focused on knowing the underlying laws and regulations that apply to investment advice, it is primarily an exam of memorizing and recalling information. Which means people who are “good at test taking” will find it relatively easy, and for everyone else, it’s still a manageable challenge, as long as you put in the hours to study.

In fact, because the Series 65 exam is so popular, there are a number of providers who offer Series 65 study guide materials, practice exams, and other educational content to help pass the Series 65 exam. In practice, the most popular providers appear to be Kaplan’s Series 65 live review and practice exams, along with TesTeachers, and for those looking for the most affordable option, consider Robert Walker’s “Pass The 65” book (and supporting practice exam questions as well).

Notably, though, the reality is that the Series 65 ultimately qualifies investment advisers to give advice about how to invest a household’s cumulative life savings… which arguably means a 3-hour licensing exam alone shouldn’t really be sufficient in the first place, and that advisors who are serious about helping their clients should go further, pursuing professional designations like the CFP certification as well. Fortunately, those who do pursue a professional designation, including the CFP marks, the ChFC, and the CPA/PFS, along with the CIC or the CFA, can actually get a waiver to skip the Series 65 exam altogether (though it’s still necessary to complete the rest of the requirements to join an RIA as an IAR!).

But the bottom line is that the Series 65 exam isn’t really much harder than other common industry licensing exams, like the Series 6 or the state Life and Health license. Most will take 2-4 weeks to study, spending about 20-30 hours, and pass the exam with its required 72% passing grade. Just be certain to spend the time it takes to study and really learn the material!

#OfficeHours with @MichaelKitces Video Transcript

Welcome, everyone! Welcome to “Office Hours” with Michael Kitces!

I wanted to talk today about what is takes to become a Registered Investment Advisor, and pass the Series 65 exam.

When we look broadly at the world of financial advisors, the RIA (Registered Investment Advisor) segment is basically the only growing channel of financial advisors that are out there. The total number of brokers at broker-dealers is in decline, the total number of insurance agents is in decline. It is because of a combination of those who are retiring and leaving the industry, in some cases because they’re breaking away from insurance companies or broker-dealers over to becoming Registered Investment Advisors instead.

But we see this shift, where the RIA channel is growing. And the fundamental requirement for being a Registered Investment Advisor is that you have to pass the Series 65 exam. And the whole transition to DoL fiduciary frankly seems to only be accelerating this further interest in becoming an RIA and passing the Series 65 exam, given that one of the driving requirements of DoL fiduciary is that compensation, at a minimum, is going to have to be more levelized, more smoothed out and spread out. So at the point that you’re mostly receiving ongoing AUM-style fees for solutions anyway, it becomes pretty compelling to look at just becoming an RIA. And then you don’t have a broker-dealer who takes a slice of your grid anymore, and you can enjoy better take-home pay. And frankly, if you’re running as an RIA and just charging level AUM fees, you’ve got the streamlined version of the DoL fiduciary rule, called the Level Fee Fiduciary exemption.

So the question that I want to tackle this week, that I’ve been hearing more and more over the past month or two, especially as everyone seems to be assimilating the looming consequences of DoL fiduciary, is this question that Charlie asked:

“I primarily sold annuities for the past several years, but with the DoL fiduciary rule coming, I’ve decided to start doing a more holistic advice. I know that I’ll need my Series 65 to get paid to manage assets, but I’m sort of nervous about the exam. Do you have any tips?”

Great question, Charlie. First and foremost, I’ll say congratulations to you for making the transition away from simply selling annuity products and into actually providing more holistic advice. I think that’s a huge overall plus, for you and for consumers, as an benefit that’s going to come from DoL fiduciary itself.

Now, the Series 65 exam, for those of you who aren’t familiar… the Series 65 is what’s called the Uniform Investment Adviser Law Exam. It’s the licensing test you have to take to either become a Registered Investment Advisor, or technically to become the Investment Advisor Representative of an RIA. So if you want to get paid a fee for investment advice, you have to either be an IAR of a Registered Investment Advisor, or you become your own RIA (and essentially be the sole IAR member of it).

Now, the Series 65 itself is 130 questions that are scored, plus 10 addition questions that they use to seed future exams, and you’ve got three hours to complete it. A passing grade is 72%. It’s straight pass/fail; there’s no super-special bonus for getting a 90 versus a 73, aside from you are learning what laws apply to you as a Registered Investment Advisor. So frankly, I would kind of hope everyone shoots for 100%. But you only need a 72% to pass.

When you look at the breakdown of the Series 65 exam itself, and the subjects it covers, you’ll find that as the name applies, it’s the Uniform Investment Adviser Law Examination. So it’s an examination about the uniform laws for investment advisors across all 50 states. Which means there’s a big focus on rules and regulations, along with a lot of material on the types of investment vehicles and their characteristics and how they work. And then a little bit about basic economic principles, and what’s called Know Your Client or KYC rules. After all, you can’t really give good investment recommendations for clients, if you don’t know enough about the client in the first place!

To sign up for the Series 65 exam, you either submit what’s called a Form U10 if you’re not already with a broker-dealer. If you are with a broker-dealer, you submit a Form U4 in order to apply for the exam.

One of the nice things about this Series licensing exam though, unlike most other FINRA series exams, is that you don’t have to be sponsored by a broker-dealer in order to take it. In fact, usually the whole point is you’re going to become the Registered Investment Advisor instead of working under a broker-dealer! Of course, you can be both, called either a hybrid or dual-registered advisor, but often the whole point of pursuing the Series 65 is to not have a broker-dealer affiliation.

To register, you simply pay $165, you file your U10, and then your exam window opens. You have 120 days to take the test. If you fail it, you’ve got to wait 30 days to retest.

How Hard Is The Exam? Series 65 Pass Rates [Time – 4:59]

Now, one of the questions I get a lot is “How hard is the Series 65 exam? What are the Series 65 pass rates?”

Unfortunately, the short answer is that we don’t know the Series 65 pass rates. There’s no officially reported information on Series 65 pass rates, the way there is for CFP exam pass rates. I know people who have done it and said it was really easy. I know people who’ve done it and said it was brutally difficult. Frankly, I think a lot of it just varies on your comfort level with studying material and taking tests.

Because the reality is that the Series 65 exam is a test of memorizing rules and laws, and being able to regurgitate it for an exam. Some people are really good at recalling that information back up; we call them “good test takers.” They’re just really good at taking information in and recalling facts for an exam. Others struggle a little bit more. So if you struggle with tests like that in general, you’re probably going to find the Series 65 hard. If you find tests like that to be easy in general, you’re probably going to find the Series 65 is really easy.

How does it compare to other financial advisor licensing exams? Charlie had said he was an already annuity agent. So Charlie, you’ve already done the Life and Health exam in your state. I think what you’ll probably find is the Series 65 is comparable difficulty to the Life and Health exam. A little easier than the Series 7, maybe comparable as well to the Series 6. Compared to broader designations out there like the CFP exam, though, the CFP exam is way, way harder and more complex than the Series 65. They’re not even in the same camp as each other. At the end of the day, the Series 65 is still a fairly limited time period to study and get through; the CFP exam takes 12-18 months for most.

In fact, most advisors I know that go through and study for the Series 65 take about 2 to 4 weeks to prepare for it. They spend a few hours a day, a couple of days a week. If you’re good at going through material, reading it and retaining it, you may be able to just buy some self-study guides, read through, retain all the information, and you’ll go take the Series 65 exam and pass it. You’ll spend maybe 10 or 20 hours just self-studying for the exam.

Most people do at least a little bit more exam prep. Maybe you make flashcards for yourself to test some of your knowledge and recall of the facts. Maybe you take some practice exams – there are a couple of providers out there – and spend another 10 or 15 hours doing that. So you’re in for maybe 20 or 30 hours of studying.

At the high end would be people who take a month, and spend 40 to 50 hours cumulatively studying the Series 65 exam material.

Series 65 Study Materials And Exam Prep Providers [Time – 7:34]

Now, the good news is because it’s such a widespread and standardized licensing exam, there are a lot of providers out there that do everything from study materials – both written and instructors either doing recorded videos or live videos – along with lots of choices for getting flashcard materials and practice exams. There are a lot of choices out there.

When I did my Series 65 exam years ago, I studied with a group called Dearborn, which I know still does study test prep materials, but I don’t think Dearborn actually does the Series 65 exam prep anymore. I think they sold it off to someone else along the way.

But I talk to a lot of other advisors out there who go through Series 65 exam, and I can tell you the ones that I hear most commonly that are well-reviewed. The people who say, “I did the Series 65 exam prep, then I took the test, and I felt the prep material appropriately prepared me for the test…” that is what you would want.

The number one Series 65 exam prep provider I hear recommended most often is Kaplan’s Series 65 program. You can get self-study materials, or you can take a live class. Most people sign up for their test bank of questions as well, and just keep taking practice questions over and over and over again. Just keep drilling the practice questions. When you keep doing practice questions and you’re consistently scoring 80% or above, you should be fine to get a 72% on the exam. Because again, the test questions are reasonably comparable; Kaplan reportedly does a good job.

The other program I’ve heard a lot of good reviews about I have to admit, I am not familiar with it, I haven’t been through it myself, is called TesTeachers. They do study materials for lots of different programs, including lots of different Series exams, and do this for the Series 65 exam in particular.

Now, for most of these, you’ll spend about $200 to $400 on the study materials themselves. It’s towards the lower end if you just get self-study materials, and towards the higher end if you’re going to get live or video instructors, and good Series 65 practice exam questions as well.

The Series 65 vs 66 Licensing Exams [Time – 10:06]

The Series 65 is what you need specifically to become a Registered Investment Advisor. If you’re also functioning under a broker-dealer and you’re getting paid for securities products, you need either the Series 6 to sell mutual funds, or the Series 7 if you’re also going to get paid for stock trades. So we have the Series 65 for doing investment advice, and we have either the Series 6 or the Series 7 for selling securities products. With either of those, you also need the Series 63.

So you need the Series 63 and the 6 or 7 to get paid for selling securities, and the Series 65 to get paid for investment advice. The Series 66 is a combo of the Series 63 and the Series 65. So if you’re at a broker-dealer and you’re going to be a hybrid, getting paid for investment advice (or managing investment accounts) and also for selling securities products for a commission, you would typically take the Series 66, along with the Series 7.

When I went through and got my Series licenses, I actually did them incrementally. I did the Series 6 and Series 63, then I went back and sat for my 7, and then I went and got my Series 65 because that was all I had left. But if you’re going to come in and do it all at once, you often do the Series 7 and the Series 66, because it’s kind of the all-in-one wrapper in the broker-dealer environment.

Notably, if you’re going to be a standalone Registered Investment Advisor, you don’t need a Series 6 or 7. The Series 6 and the Series 7 are specifically for getting paid to sell securities products under a broker-dealer. If you’re a standalone RIA, you don’t have a broker-dealer at all. You don’t need one, you don’t have to be sponsored by one, and that means you don’t need a Series 6 or 7, nor a Series 63. Therefore you don’t need the Series 66 either.

So people who are going standalone RIA typically just do the Series 65 exam. If you’re at a broker-dealer and you’re looking to do all of it together and you’re going to be a hybrid or dual-registered, then you’re probably looking at the Series 66.

Series 65 Exam Waiver And Other Professional Designations [Time – 11:49]

Now, the other thing worth noting about the Series 65 exam itself, is that not everyone who wants to be an RIA, or an IAR for an RIA, actually needs to take it. There’s an option to get a waiver and get out of the requirement.

Any of those designations, and you don’t have to take the Series 65 exam. It’s waived. Now, if you want to get paid for investment advice, you still have to become an RIA. You still have to register as an investment advisor, either with the state, or with the SEC if you’re going to be across multiple states and you’re eligible by assets. The professional designations don’t waive the requirement to register as an investment adviser. They just waive the requirement to do the Series 65 exam as part of your overall registration requirements.

Going forward, I think we’re going to see a lot of people in Charlie’s situation, that have maybe been part of the product ecosystem in the past, that want to start doing more holistic advice now that DoL fiduciary is coming, and is likely to cram down commissions, at least to some extent. Because if you’re going to shift to a more levelized compensation model, most advisors find once their assets grow to a certain point, that it’s hard to justify being on a broker-dealer. You can establish your own RIA, pay your own operating expenses, outsource your investments to a third-party asset manager, and still net more take-home dollars as an advisor. Unless maybe you go to an independent broker-dealer where you can negotiate a much higher grid payout.

So there’s going to be more RIA registrations going forward. I suspect we’re going to see a lot of people going out for the Series 65.

But the bottom line, Charlie, is I don’t think the Series 65 is a horrific exam by any measure. If you were able to get through your life and health okay, and maybe you’ve done your Series 6 as well, I don’t think you’re going to find it any worse than those. Most advisors seem to view them pretty comparable. If you’re good and comfortable taking tests, you’re probably going to find it really easy.

But plan to spend a few weeks reading the books. Get the study materials, and spend time reading so you’ll be able to recall the information. If you struggle a little taking tests, then definitely plan to do practice exams. And frankly, just keep taking practice test questions from the test bank over and over and over again, until you’re scoring 80% or more, and then you should be in the clear for taking the Series 65 exam itself.

But when you think about it, the Series 65 is the only dividing line between a person off the street and a consumer’s life savings. So if we’re going to give someone a license to give advice about a household’s entire cumulative life savings that they spent decades to accumulate, frankly, I think a three-hour exam that just tests the laws that will apply to you and almost nothing about how to actually give competent financial advice, is woefully inadequate.

In other words, it’s not just about acting in the client’s best interest; you have to actually be competent in what you’re doing. So Series 65 is a minimum licensing requirement, not a best practice. But it’s something that you can work up towards, and if you start with your Series 65, you can move on to your CFP. If you’ve done your CFP first, or you’re an advisor in the industry and you go get your CFP, it’ll be easier when you do the switch to RIA, because you won’t even have to take the exam at that point, you’ll be eligible for the waiver.

So I hopes that helps a little to understand the landscape of the Series 65 exam, and some exam prep providers that offer self-study materials, live review, and practice exams.

This is “Office Hours” with Michael Kitces, Tuesdays at 1:00PM east coast time. Hope this has been helpful. Thanks for joining, everyone, and have a great day!

So what do you think? How did you study and prepare for the Series 65 exam? What exam prep providers do you recommend to use, or to avoid? Any tips for those still preparing for the exam? Please share your thoughts in the comments below!

Related

Michael Pensinger

“Pass the 65” was a great study tool for me. I thought the exam was pretty easy, too. Literally the first question was something to the effect of “if you buy a stock are you… long, short, did you put on a straddle, or did you write a naked option?” Once I read that I breathed a sigh of relief and said there’s no way I’m failing this exam. To your point, questions like these qualify an individual to manage someone’s life savings? Yikes!

Stephanie Bates

I have had my Series 7 and 63 for 20 years and now need to take either the 65 or the 66 for advisory. I know the 66 is shorter (but a higher passing percentage) than the 65. Logic would say the 66 is the way to go (because it is shorter) but I have read mixed opinions on that with many saying the 66 is much more difficult. Do you have any suggestion/opinion of one over the other in terms of prep time and ease of passing?

Aly

I passed both the Series 6 and the Series 63 with very little effort, but the 65 was much harder, even after several more years of being in the industry. Personally I think limiting studying to 20 to 30 hours would be setting yourself up for failure. The test is designed to trip you up and is pure memorization, rather than applied concepts. I would highly recommend the Pass Perfect live class program after self study, as they do a better job of explaining what they will actually test on. Unless you are a stellar multiple choice test taker, I wouldn’t underestimate this one!

Michael Simone

Used TesTeachers. Tremendous material. Spent maybe 50 hours with the material and passed and i don’t remember that it seemed too, too difficult. (But I’m good at test taking and I love self-study and that may be a variable that doesn’t apply to others. In fact if I never sat in a classroom again that would be fine by me!) 65 is harder than Life/Health, but CFP and EA were much more difficult than any either 65 or L/H.

I gather you are still an EA? How integral is tax preparation to your business, i.e. more for acquiring clients or servicing existing clients? I ask because I prepare most of my clients’ tax returns, and it is a real value-add.

Michael Simone

I have no interest in preparing tax returns. I’m interested in tax strategy and creating tax plans. I just passed the 3 EA exams and unless they find out I’m creepy, I should hear from the IRS by mid-Oct. EA just provides a level of cred and that’s all, really. My partner, a CPA, told me a while ago, ‘learn tax because most advisors are terrified of it.’ And I’ve been on a tear to do that for a while now.

Most consumers have no idea what the difference between a Series _ _ (fill in the blanks, it doesn’t matter), or what an RIA means. BTW, and RIA is what a business is, not a personal designation, i.e. don’t called yourself a Registered Investment Advisor.
As a CFP I know little about the actual Series 65 exam, so it is disturbing to hear that the it is not very useful to the sales agent, and therefore the consumer will not benefit from it either. But who is at fault here? Not those that are fulfilling their RIA requirement by getting the license.
So my tip is that if you really want to do what is best for your client, and as Michael points out the DOL says you had better, then dedicate yourself to a life long journey of learning. I don’t know about you, but many of my clients have not saved as much as they should have (shock!), don’t have defined benefit pensions, will continue to deal with skyrocketing medical costs, and find themselves in a Social Security system that is set up just like a Ponzi scheme. The tried and true three-legged stool is no longer applicable for most.
The only way we will be able to guide and counsel our clients so that they meet their lifestyle goals is through our dedication to educating ourselves and those around us, and not counting on some regulatory body to guide us to what they think we should know. And if you are a regular reader of Michael’s, that is a great place to start!

Michael Simone

One issue is that generally those in the situation you mentioned (‘underfunded boomers’) don’t have the assets to make having a series 65 alone useful. If you’re going to make a living as an IAR you need higher NW people who aren’t underfunded to gather sufficient AUM. If you want to be helpful to underfunded boomers, you have to sell them stuff, so you need securities and insurance licenses.

These people take a lot of time, their planning isn’t necessarily simple, and the sufficient return for one’s labor is often scant. So you have to help tons of them to make a living and then you’ll have a frantic quality of life problem and a scramble to find more of them. I’m glad I got the CFP for the education, but I soon realized it’s (in general) directed at the kind of people who are underfunded.

We may bemoan these facts, but this is usually the case.

John C.

I just sat for the 65 about a month ago. I used the Pass Perfect 65 program and could not recommend it strongly enough. The reading material was good, but the practice quizzes, tests, and exams were excellent. The questions were very close to what I saw on the exam and I scored a few points higher on the actual exam than I was averaging on the Pass Perfect quizzes/test.

kepm123

I took the exam back in May. I used the Kaplan Material and it was OK, Mostly watched/listened to the videos. Then looked over their exam notes and took their practice exams. I did not study much, work outside the financial service industry and passed the first time.

Meg Bartelt

MAN, do I wish this video had been around a few years ago when I was trying to figure this whole rat’s nest out. Nice to know I can refer people to it when they’re trying to get started in the industry!

I write about financial planning strategies and practice management ideas, and have created several businesses to help people implement them.